Taking Charge of Your Financial Future

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1 Taking Charge of Your Financial Future

2 Why is Your Credit Score Important? Understanding credit scoring can help you manage your credit. By knowing how credit risk is evaluated, you can take actions that will lower credit risk, and you can raise your score over time.

3 How is Your Score Calculated? Exactly what formula is used to calculate a score is shrouded in mystery and protected by the Federal Trade Commission (think of it as a secret recipe). Credit score scales generally range from 300 to 850 or 350 to 950. The higher the score the better the credit risk The lower the score the worse the credit risk

4 How is Your Score Calculated? In 2012, the average credit score of those approved for a home loan was 761. In 2013, the average credit score of those approved for a home loan was 753. In 2014, the average credit score of those approved for a home loan was 744. Your mortgage costs will be higher if you don't have a credit score of at least 740 on an 850 point scale.

5 What Your Credit Report Shows Debts and payment history with creditors: Loans with credit card companies, banks, department stores, and finance companies Whether bills were paid on time and proper amounts How much debt you currently have and if loans are not paid back History of tax liens, bankruptcies, and other public records even if they happened several years ago How often you have applied for credit in the past two years.

6 Payment History = Approximately 35% of the score: Includes information from public records on bankruptcies, foreclosures, tax liens, etc. Number of months since most recent 30-day or higher level of delinquency reached. Highest level of delinquency reached in the last 12 months.

7 Past Payment History HIGH RISK LOW HIGH N0 DELQ MONTHS SINCE MOST RECENT MAJOR DELINQUENCY

8 Repairing Your Credit Score The sooner you clean up any collections or past due payments, the faster your credit score will repair. Revolving credit: 90+ of credit line considered maxed OK to stay at 35% of limit. Above that start chipping away at score. Decreases score by 10 to 45 points, above 35%. Get points back when paid off. Paying down revolving debt is the fastest way to affect score.

9 Payment History One 30 day late payment hurts your score less than in the past, but still decreases it by 60 to 110 points. More than one late payment, or even one late that rolls to 60 or more days will hurt your credit score even more!

10 In the Secret Recipe Outstanding Debt Utilization = 30% of your score: Amount of outstanding debt Amount of revolving credit available Amount of revolving credit used per account

11 HIGH Outstanding Debt Utilization RISK LOW 0-15% 16-29% 30-45% 45-59% 60-74% 75+% RATIO OF TOTAL BALANCES TO TOTAL LIMITS ON REVOLVING ACCOUNTS

12 In the Secret Recipe History & Length of Credit = 15% of your score: Number of months since the oldest active revolving account opened Number of months since the oldest installment account opened Credit Surfing can be a problem

13 The Amount of Time Credit Has Been Established HIGH RISK LOW NUMBERS OF MONTHS SINCE OLDEST REVOLVING ACCOUNT OPENING

14 Type of Credit Being Used = 10% of your score: Number of bank cards being used Number of retail or department store cards being used Number of finance company accounts

15 Other Types of Debt Installment debt: Payment history affects score more than balance. Pay on time over time. Disputes: Not factored into score, but may have to be resolved for credit approvals, such as mortgage. Divorce decree: Not taken into account with credit bureau. Your name must be removed from debt or credit vehicle. Decree does not do this.

16 Other Types of Debt Type Debt Settlement Foreclosure or Short Sale Bankruptcy* Can decrease score by points points points *Stays on credit report for 10 years, but has lesser impact in later years.

17 What is a Healthy Mix? The score will consider the mix of credit cards, retail accounts, installment loans, and finance company accounts. It is not necessary to have one of each, and it is not a good idea to open credit accounts just to have them in the mix. The credit mix usually will not be a key factor in determining a score, but it will be more important if a credit report does not have a lot of other information on which to base a score.

18 New Credit Inquiries = 10% of your score: How many inquiries impact the score Which inquiries impact the score Number of inquiries in the last 12 months

19 Different Credit Inquiries Hard inquiry: Credit you applied for. Multiple applications for credit in a short time period may hurt credit score. Soft inquiry: Preapproval offers. These do not impact credit score.

20 Top Reasons for Low Credit Scores Serious delinquency Serious delinquency and public record or collection filed, such as foreclosures, bankruptcies, judgements Derogatory public record or collection file Time since delinquency is too recent or unknown Level of delinquency on accounts Number of accounts with delinquency

21 Top Reasons for Low Credit Scores Amount owed on accounts Proportion of balances to credit limits on revolving account too high Length of time accounts have been established Too many accounts with balances

22 Top Reasons for Low Credit Scores Collections Part of payment history. Paying it off does not get it removed from report Paying off over time may not rebound score significantly Paying off quickly could affect score a second time Charge-offs

23 Credit Scoring Example Credit scoring is a technology used by credit grantors to qualify the risk associated with extending credit to a given consumer. Characteristics Attributes Points # bankcard accounts or more # finance accounts # months in file <

24 To Have an Established Credit Score One account has to have been open for six months or more. Enough information and enough recent information in the report on which to base a score. Credit reporting agencies do not score any disputed accounts.

25 Why You Might Not Have a Credit Score You may not have any established credit history. For example, you may not have the type of credit that is typically reported to the credit bureau: Contract for Deed Rent Small banks that do not report to a credit bureau

26 What is your score used for? Approving new accounts Application Instant credit approval Existing account management Increasing lines Reissuing or canceling cards

27 Things That Can Hinder You From Bad debt Late payments Getting the Best Rate Reported to credit bureau after 30 days Large lines of credit Judgments and collections Too many cards Over your limit

28 What is your score used for: Determining what RATE you pay Model Year Term FICO >700 FICO FICO < mo. 6.55% 7.35% 7.95% mo. 7.00% 8.00% 9.00% mo. 7.50% 8.75% 10.00% mo. 7.50% 8.75% 10.00% Rates and terms are provided as an example only

29 What is your score used for: Determining what RATE you pay Loan Amount Rate Term Monthly Payment $15,000 5% 60 mo. $283 $15,000 7% 60 mo. $297 Rates and terms are provided as an example only A $168 difference over 1 year and an $840 difference over 5 years.

30 How do people score? Above % 745 to % 690 to % 620 to % Below %

31 Your Credit Score is Part of Your Credit Report Your are entitled to one free credit report each year from each credit reporting agency. However, there is generally an extra charge for your credit score.

32 How Do I Get My Free Credit Report? Go to From this website you can access all three credit bureaus. We recommend looking at your credit often and pull a different credit bureau every 4 months to stay on top of your credit. Consult with your local banker.